A recent visit to afternoon TV revealed that the “Million dollar myth” is still out there, being perpetuated by surprisingly young “experts”, keen to see you tip more of your savings into whatever scheme or product they’re flogging.
And while there’s nothing wrong with having a 7 digit retirement nest egg, the fact is that many of these experts conveniently miss a few key facts along the way.
Facts like the integration of our social security system with our savings in retirement and that most retirees don’t have to worry about things like tax. Apparently, they don’t know that most seniors qualify for hefty discounts on utilities, transport and other costs.
What a sizeable asset base gives you is arguably, more choice.
Choice to retire earlier, choice to change your car over – probably more frequently than you need to – and choice to fly up the sharp end when you travel. But to say that retirement with less than $1 Million will require you to join the dumpster-dive Facebook group is rubbish (excuse the pun).
Assuming you’ve done the hard yards to hit retirement age like many others, you probably own your own home, the kids are off your hands and you are pretty much debt free.
Debt free means no mortgage, personal loans or other dead money payments which let’s face it, are a huge impost on our pay-packets during our working lives.
Expenses will broadly fall into the 6 categories of food, energy, maintenance, medical, transport and extras. Extras will be the semi-discretionary outlays like gifts, holidays etc.
Everyone’s different, but the Association of Superannuation Funds of Australia reckon a modest retirement for a couple will cost around $47,000 per annum and about $72,000 for a comfortable retirement. For a single, the range is between $33,000 and $51,000.
Also remember that there are plenty of Aussies who get by on the pension alone. Sure, it is a basic life-style, but manageable.
Let’s take a couple with a typical lifestyle that’s almost smack in the middle of the range with a figure of $60,000 per annum. Let’s say that instead of $1 Million in savings, they have about $350,000 which is quite common. Indeed, it is substantially less than the “average” total amount a working male and female couple would have, of about $570,000. Of our available $350,000 we’ll plonk $330,000 into super leaving $20,000 in the bank.
At this level, our couple can forget about means testing, because they are under both the Centrelink income test and the asset test thresholds. That means a full age pension of a combined $43,752 per annum. To that, we add our super fund that’s now been converted into an account based pension paying the mandated 5 percent or $16,500 per annum. That generates a grand-total of $60,252 per annum.
All this, with not a cent of tax to pay and that’s without factoring in those seniors discounts which can be worth thousands per year in savings.
Significantly, generating 5 percent per annum means we can do this with a low-risk investment portfolio.
When you conveniently ignore these little things like Centrelink in your calculations, to generate the same $60,000 per annum using an investment portfolio generating 5 percent per annum, you would need to stump-up with $1.2 Million.
And guess what ? At this level, $1.2 Million means you won’t qualify for any pension and there will be minimal government assistance.
The figures for singles aren’t quite so good because the pension means testing system favours couples. Nonetheless, a single home-owner with the same $350,000 in savings will be on a total minimum income of just under $40,000 per annum.
But here’s the twist. Because they are likely to be asset tested, their pension rises by $30 a fortnight for every $10,000 they get rid of until they get the maximum possible. That’s roughly $70,000 from the starting figure of $350,000. Bizarre as it seems, at this level they’ll be on an increased minimum income of about $42,500. That’s right, it goes up!
So while we should all diligently squirrel and save as much as we can, remember that for many of us, savings will simply increase the choices available as we approach retirement.
And if you’re well under the Million dollar super balance and spooked, get some good, sensible advice. Realise that a comfortable retirement doesn’t mean you have to risk your savings on dodgy things like Bitcoin, or a negatively geared property in a Queensland country town you never heard of.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.